Sunday, March 9, 2014

Back to Basics (Young, In Love, and Nearly Broke)

Early this morning when I should have been sleeping, I was remembering what it was like to be young, married, and nearly broke. I thought about all the advice given to young people about saving for retirement, buying insurance, buying the first house, and the 10,000 other necessities required in our debt based consumer society. If you are young, in love, and nearly broke, take a deep breath. Focus on two ideas.

Rule Number 1! Avoid debt like the plague.

Then concentrate on what Dave Ramsey calls the four walls, although it is actually four walls and a roof.

If you will let me get away with this statement, the first wall is the roof over your head. You need a place to live, usually a rented apartment. How much apartment can you afford? The rule of thumb is your combined gross annual income divided by 40. For example: $50,000 / 40 = $1,250 Maximum! The other rule of thumb is 30% of your salary can be spent on rent. Watch this math magic: $50,000 / 12 = $4,166.67 monthly salary; $4,166.67 X 0.30 = $1,250. You need a safe, reasonably convenient place to live, but nothing more than that. If you live in San Francisco meeting this rule of thumb will be difficult. You might have to cut corners in other areas to avoid a dangerous or unhealthy home environment. If you live in Greenville, SC you should be able to find something for less than the rule. That should free up some money for other purposes. While I am on the subject, you don’t need new furniture from the Room Store (90 days same as cash). This is a beautiful time of your life. Enjoy it as it should be enjoyed. This time will never come again. Take a tip from the old Bob Marley song, Is This Love.

I wanna love you every day and every night:
We'll be together, with a roof right over our heads!
We'll share the shelter of my single bed;
We'll share the same room, yeah! Jah provide the bread.
We'll share the shelter of my single bed

The next wall is utilities. Make sure you can pay the electric bill. Most often water is included in the rent. That leaves electricity, cable TV, Internet, and phone. You don’t need cable. Cut it. You do need Internet and a phone. Find a way to minimize that combined monthly bill. You don’t need an expensive smart phone plan, a land line, and 30 Meg Internet service. I come from a different era, so I won’t try to tell you what the best compromise solution should be for your life, but you can get by with less than you think you need. Obviously, you can control that electric bill, at least some of the time. Keep the thermostat turned down in the winter. Set it higher in the summer; instead of running the air conditioning use box fans. To paraphrase the song sometimes, “There ain’t no cure for the Wintertime blues.” If your apartment building has heat pumps, a winter like this one is going to cause you to run those coils even if you lower the thermostat. Expect a higher power bill. Build it into your monthly budgets.

The third wall is food. Almost all Americans (myself included) spend too much money on fast food and convenience food. Take an honest look at how you spend money in this area. Charles Hugh Smith once said, “A healthy home cooked family meal and a home garden are revolutionary acts.” Flowerpot gardening on apartment balconies is a little too hard core for me, but we all can do better. You don’t really need that $5.00 latte from Starbucks. Spend the $5.00 on a thermos from Walmart. Brew your coffee at home. “Save money. Live better.” The Simple Dollar blog is a great place to learn about lowering the cost of consumables. The author specializes in finding elegant ways to live a full, rich life without buying into the lies of our credit based economy.

The Simple Dollar

The final wall is clothing. That is simply not a problem in America. Unless there are young children in the mix, most of us could go the next two years without buying any new clothes. I know, you ladies will say, “How about pantyhose? I have a job.” OK, but how about you wear the ten pairs of shoes you already own rather than buying ten more pairs over the next two years? I also know that good safety shoes are expensive. They don’t last very long in a shipyard or on a construction site. More and more, young Americans are discovering places like Goodwill stores and consignment shops. In every city in America you can find high quality clothes, sometimes unworn with the original tags, for pennies on the dollar. If you are cutting it close, budget $0 for clothing this month. If you find a $200 dress in a consignment shop for $25, you can probably pay for that out of your “contingencies” envelope.

Now for the roof, transportation. We live in America. With the exception of sections of a few major metropolitan areas, mass transit either does not exist or is impractically. In most of this country a car is a necessity. For young couples, just getting started, that would be one car, not two cars. Back in the day, we did that for a couple of years. It was inconvenient but it didn’t kill us. Driving one used car instead of two new cars will do wonders for your family budget and your financial future. I wouldn’t spend less than $3,000 on a used car unless you are a competent mechanic. A $1,000 car is likely to be a money pit. After you put another $1,000 into repairs, you will still have a $1,000 car. Most of time people entering marriages already own a car. If you have one that is runs well and is paid for and one is still carrying a note, guess which one you might want to consider selling?

You’ll get there. Really. Focus on the basics. Just keep doing the right things. One day you will wake up wondering what happened to all those years. You will have a house crammed with the flotsam and jetsam of 30 years of married life. You will be ready for retirement since you have been socking away 15% of your pretax income into the company 401(k) and your Roth IRA. Now if you can just come up with another $30,000 for a perfect wedding for the little princess….

For now, just enjoy a love song by Bob Marley.

Is This Love

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